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Real estate investing advantages

Many people are still nervous of getting into real estate investing. There are various reasons for this. It seems to require a lot of technical knowledge; it can involve high financial costs; and it appears to involve a lot of hard work. These things are, of course, true.

However, there are countless reasons why one should invest in real estate when there are other avenues for investing. The main reason people to choose the real estate market is that, real estate is very much profitable and safer when compared to other kinds of investing like mutual funds, currency investing and buying silver or gold. You should have noticed one major thing in real estate investing, even though there are some ups and downs; the real estate is always growing.

1. Cash flow from estate property

The first and one of the easiest ways to make money is from the cash flow from rental properties. This means the difference between your income and your expenses on that specific piece of property. Of course, this can be either negative or positive. You feel a lot better when it's positive, but negative cash flow isn't necessarily bad if it's a planned part of your investment program. But be careful of the temptation to use up your whole cash flow on rapid debt reduction.

If you have individual homes or houses in apartments, you can rent those properties to make a steady flow of income for many years. This is considered to be a safe way to make money. And after a couple of years you can increase the rental. However, the size and location of your property plays a role in making money! When it comes to renting, inflation is your best friend as this will increase the cost of construction price and the growth of population causes a demand for housing which will be increasing the value of the rented properties.

Most types of real estate investments such as offices, apartments, shops, factories and even vacant land are able to provide a regular source of income in the form of rent through leasing out the property. As rents are generally contractually fixed for a term of years, such as three years with an option to renew at the prevailing market rent for another three years, there is a certain degree of security of income at least during the term of the lease. Hence, whilst the stock market tends to be highly sensitive to short term changes with prices rising and falling generally across the board and sometimes very rapidly, property rental income and thus values tend to lag behind such short term market fluctuations.

2. Security of capital

Property offers one of the safest form of investments in terms of security of capital as it is durable, has a long economic life and for some types of properties is relatively scarce. Moreover, whilst a building may be destroyed by fire, the land on which it stands is indestructible and generally appreciates in value over time. In fact, because property is durable, there is added security in that while an investor in stocks and shares may lose all his capital if the company goes bankrupt, such a situation is unlikely to occur in real estate investment.

3. Appreciation in the value of an estate property

There are two kinds of appreciation, which we can call "external" and "internal". "External" appreciation has nothing to do with the actual property itself but comes from economic conditions, land scarcity, etc. When there is appreciation of value of other commodities, there is always an increase in value of properties. Some people have made good deals by predicting where the next property "hotspot" will be and buying in hopes of quick appreciation - but of course, if you get it wrong, you are in trouble. Real estate has an outstanding source of profit over a time, but no one can guarantee about this trend and it varies based on the area.

"Internal" appreciation comes from improvement in the actual property itself and is easier for you to control. You can buy a piece of property in need of repair at its "as is" value, improve it and sell it on at a profit.

4. Leverage

Being able to buy a piece of property by borrowing a percentage of its value. No other type of investment offers such a high degree of leverage. It is not unusual for investors to purchase a single family house by obtaining 100 percent financing - i.e. "no money down" real estate investing. This of course is very attractive if you can "flip" the property at a profit, quickly repay the loan and pocket the difference. But of course this can also be extremely risky. If the property doesn't prove to be a good investment, you are in trouble. Never forget the loan is a loan and has to be repaid - somehow.

Building wealth through refinancing

Building up an real estate or property investment portfolio may be a vehicle for becoming wealthy. Once an investor's equity has increased through capital appreciation and repayment of the loan taken, the original property can be refinance to free cash that can be used to buy a second property, or the increased equity in the original property may be used as a collateral of security for a loan to buy a second property. By refinancing a property investment and reinvesting these funds in more properties periodically, an investor can accumulate a large property portfolio over time.

5. Amortizing

You have bought the property with other people's money, but as you repay, your principal is being reduced. That means your equity - your level of ownership of the property - is being increased.

6. Tax advantages

There are several ways in which real estate property ownership can be used for legitimately reducing tax even avoidance - though this should not be your first and foremost reason for buying the property, more a side benefit. And make sure to seek advice and guidance from a professional who is expert on real estate laws in your area.

These are the main benefits of real estate investing. There are many more - associated with the satisfaction and enjoyment, and the "residual" nature of the income as opposed to "linear" income - i.e. the money comes in even when you're not actually working. Above all there's the "buzz" which many claim beats the excitement of any other type of investment!

28 comments:

  1. Investing in real estate for the first time can be a difficult thing. The person who has yet to invest in rental properties, may have lots of questions about the process, benefits, etc.
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  2. I think real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds.
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  4. "I think real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds" that's what the business is all about!

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  7. Today the growth in real estate market is grow day by day so to invest in real estate is very worth full.
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  13. We should assess the things that might happen in our Property Investment to make that we can control things for the benefit of our business. The most important message that my agent told me is that to learn first that will help us run our business well. Think of a way on how things will go as well for our business and make sure that we can possibly succeed in everything we have.

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  19. Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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  20. There are lots of reason why we should establish our business in the right time. First is the profitability of it and the effectiveness. We should always think of Property Investment Portfolio as one of the businesses that should be well planned in order for us to achieve our goals for our future.

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  21. Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.

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  25. Most of the people invest in rental properties because of the cash flow and the extra money which can leave after all the payments is settled.

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